What can we expect from the upcoming changes to Minimum Energy Efficiency Standards?

The Government is due to announce its decision on changes to Minimum Energy Efficiency Standards (MEES) for commercial real estate later this year, with the evidence assessed to date pointing towards commercial MEES being raised to a minimum Energy Performance Certificate (EPC) rating of B after 2030 but before 2035.

What are Minimum Energy Efficiency Standards?

In England and Wales there are legal minimum standards on energy efficiency for privately rented commercial properties. EPCs identify a property’s efficiency, with the current minimum legal EPC rating an E; buildings with lower ratings cannot be leased, although some buildings are exempt. MEES does not cover Scotland where other efficiency regulations apply.

Proposal to raise MEES

The idea of raising MEES, and therefore the efficiency of stock, was first proposed in a 2020 white paper by the previous Government. The proposal recommended raising the minimum standard to EPC B with a deadline of 2030, after which buildings with a lower EPC rating would become illegal to lease.

This was an ambitious target and CBRE analysis in 2022 revealed that if historic trends continued, around 60% of commercial stock could fail to comply by the deadline.

The Government consulted on the policy, but for several years, there was little indication of whether the policy would eventually become law. However, with the election of a new Government in 2024, there have been signs that a change to MEES is approaching.

The Government stated that it planned to publish the response to the Non-Domestic Private Rented Sector MEES consultation early in 2025. While early 2025 may now be behind us, we still expect a response this year.

Indicators of an anticipated stricter commercial MEES policy

1. Seventh Carbon Budget

The Climate Change Committee (CCC) advises the UK Government on how to reach its 2050 net zero target. It recently published the Seventh Carbon Budget arguing commercial and public real estate emissions need to fall by 87% by 2040 compared with 2023.

It suggests around half of this reduction will come from low carbon heating systems and just over a third from improved energy efficiency. Raising the minimum EPC threshold would help achieve both targets. The CCC argues that all cost-effective efficiency measures for commercial real estate should be implemented by 2032.

EPCs are a widely used measure of efficiency and regulation on minimum standards already exists. Raising the standards through a change to MEES is a straightforward way the Government can attempt to reduce emissions from commercial real estate.

2. Intentions of the previous Government

In the previous Government’s 2023 report to the CCC on policy intentions, it stated that “the proposed timelines within the original [MEES] consultation will require updating to allow sufficient lead in time for landlords and the supply chain.”

This suggests the previous Government acknowledged the 2030 deadline for B ratings was challenging and would require more time to achieve. Therefore, it’s likely that the upcoming announcement will set the deadline after 2030, but before 2035 to remain close to recommendations in the Seventh Carbon Budget.

3. Conversations with the Department for Energy Security and Net Zero (DESNZ)

CBRE understands from multiple sources with knowledge of DESNZ decisions on MEES that the policy is likely to retain the minimum EPC B rating requirement.

We also understand that there may be some flexibility on exemption terms. The original consultation suggested few buildings would be exempt. However, existing MEES regulation exempts some buildings where efficiency improvements are not deemed ‘cost effective’. This includes where efficiency measures have a long payback period over a certain threshold. It is possible exemptions for the new policy will follow this example.

Implications for the industry

The evidence suggests MEES for commercial real estate are likely to be raised to a B rating with a deadline set at least a year after 2030 but not later than 2035. Certain buildings may be able to apply for an exemption related to cost-effectiveness.

If announced later this year, many landlords will need to invest in improving the energy efficiency of their buildings over the next several years.

A significant proportion of commercial stock is currently below the EPC B threshold. For example, we estimate 58% of office stock (by square feet) in Central London* has EPC ratings below B.

We recommend taking cost-effective actions to improve energy efficiency so commercial properties meet or exceed the EPC B rating well before the deadline. As the deadline approaches, competition for labour and resources will likely increase costs and reduce choice, potentially delaying the ability to comply with the new policy or an inability to lease properties.

To fully understand exposure to compliance risk, landlords should ensure their data on EPC ratings is correct and up to date. In some cases, commissioning a new EPC to replace EPCs granted before 2022 when the calculation methodology changed can lead to an improved rating without the need for capital expenditure. Where investment to improve energy efficiency is needed, aligning retrofit schedules with routine maintenance or the end of tenancies can be more cost effective.